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Many in the Islamic finance community found an opportunity in the global financial crisis to boast or at least be a little smug. The problems in the western banking system were a vindication of Islamic finance, practitioners would say: no Islamic bank, anchored on tangible assets, could have got messed up with CDOs and other derivatives. The safest way was the Shariah way. To an extent, they had a point. But the smarter members of the industry recognized that, while Islamic finance came through the crisis in far better shape than its conventional equivalent, it was a long way from being bulletproof.
In mid-2008, with the crisis in the conventional world intense, Euromoney asked professor Rifaat Ahmed Abdel Karim – then secretary-general of the Islamic Financial Services Board (IFSB), the Kuala Lumpur-headquartered body tasked with bringing harmony of approach and financial prudence to the Islamic banking industry – if the turmoil in conventional credit markets created an opportunity for Islamic banking to prove its worth. We expected a gung-ho response and didn’t get one.
"It would only provide that opportunity if the Islamic financial services industry can establish it has an inherent resilience to a similar crisis," he said.
